It’s a familiar story: a senior executive in a secure job with pampering conditions in a prosperous company leaves in favor of the adventure of leading a promising, lively venture that seeks to snipe at the traditional giants of the sector. Besides the management challenge of the new job, it also holds out the promise of fat (stock-based) compensation in the event of success. But the move is also a gamble: should the new venture fail, whoever heads it is liable to pay a personal price that he was not exposed to previously.
That appears to be exactly the case with Uri Kilstein, CEO of retail chain Carrefour Israel (Yenot Bitan Group), who suddenly announced his resignation this week, after just eighteen months in the job. Kilstein, formerly a senior manager at rival chain Shufersal and at Azrieli Malls, notified the board of Carrefour Israel, controlled by Electra Consumer Products, itself controlled by brothers Daniel and Michael Salkind, that he sought to step down "for personal reasons".
In the background are the huge losses racked up by Carrefour Israel in the first half of this year, and the sharp drop in its valuation, which has led to a 50% fall in the share price of Electra Consumer Products in the past year.
Kilstein (51), grew up in key positions at Shufersal, Israel’s largest retail chain, where he served as deputy CEO and Chief Marketing and Merchandising Officer. He went on to manage Azrieli Malls, a role he left at the beginning of last year, amid speculation that he would be appointed CEO of Shufersal instead of Itzhak Abercohen, who had resigned because of differences of opinion with then Shufersal chairperson Yaki Vadmani.
It may be that, had he waited a few more months, Kilstein would have got the Shufersal job, after Abercohen returned as chairperson with the ouster of Vadmani and the CEO that Vadmani appointed, Ofer Bloch. Instead, he decided to gamble on the emerging competitor, and was appointed CEO of Carrefour Israel. The challenge was to resuscitate moribund supermarket chain Yenot Bitan and make it a market leader through extensive restructuring and conversion of most of its branches to the French brand Carrefour. Kilstein and Carrefour promised a revolution in the local retail market, with a better customer service experience and the lower prices of the French chain’s own brands, which they hoped would make Israelis flock to their stores.
In May this year, the first 50 Carrefour branches were launched, after an estimated NIS 250 million was spent on renovating and converting stores. There are now 80 stores operating under the Carrefour brand, more than half of what was the Yenot Bitan chain. So far, however, the investment is far from paying off. One of the main reasons for that is macro-economic conditions that are eroding the profit margins, that were narrow in the first place, of all the supermarket chains, as costs of raw materials, haulage, wages, and capital all rise because of high interest rates.
The conversion to the Carrefour format and the restructuring of the chain also had a severe negative effect on the chain’s results. It lost NIS 138 million in the first half of this year.
Carrefour Israel now finds itself in a situation in which keeping the promise to bring down prices substantially will mean greater losses, and it appears that the owners, the Salkind brothers and Electra Consumer Products CEO Zvika Shwimmer, are reviewing the chain’s business and management model. It is believed that under consideration are bringing in another partner, and almost certainly changes in the policy on opening branches and branch size.
At the same time, Electra Consumer Products is trying to promote another move to extricate it from the food retailing morass, namely listing the chain’s shares on the Tel Aviv Stock Exchange. Electra Cosnsumer Products has already announced that it will not exercise its option to buy the stake of the chain’s founder, Nahum Bitan, at a company valuation of NIS 900 million, which is an indication of the decline in the estimated value of Carrefour Israel.
Published by Globes, Israel business news - en.globes.co.il - on October 26, 2023.
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